By Kevin P. Garland, CFP®
For many Americans, one of the largest expenses in retirement will be medical costs. “Fidelity’s Retirement Health Care Cost Estimate reveals that a couple, both aged 65 and retiring this year, can now expect to spend an estimated $245,000 on health care throughout retirement.”1 How is an individual or couple expected to pay for such a big expense? For most people, Medicare will be a large part of paying for these costs. However, Medicare can be confusing and I find that my clients have a lot of questions.
Do I pay for Medicare during my working years?
If you have earned income, you pay for Medicare through payroll taxes. 1.45% of your income is withheld as part of your FICA tax and your employer pays an additional 1.45% on your behalf. Those of us who are self-employed, pay the full 2.9%. Those with high incomes now pay an additional 0.9% Medicare surtax. This additional tax is on wages above $200,000 for those filing single and $250,000 for those married filing jointly.
When do I need to sign up for Medicare?
You can sign up for Medicare within the three months before your 65th birthday, or three months after. This period of time is referred to as your “initial enrollment period.” If you missed your initial enrollment period, you can sign up at the beginning of each year through March, for coverage which begins July 1. However, missing your initial enrollment period will result in a 10% premium increase for Medicare Part B for every year you wait to enroll.
If you (or your spouse) are covered by a health plan at work, you have a period of 8 months to enroll in Medicare once you leave the job or the coverage ends. It is always a best practice to check with human resources or the health insurance company to determine when you should enroll for Medicare.
What are the different parts of Medicare?
Part A: Hospital insurance. This is coverage for skilled nursing and hospital stays. There is no premium cost for Medicare Part A. Part B: Medical insurance. It covers visits to your doctor, outpatient procedures, lab test, ambulance services, and other medical cost. The monthly premiums for Part B range from $104.90 to $335.70 depending on your annual income Part D: Drug coverage. Part D is for prescription benefits. There is a monthly premium, deductibles, and benefit limits. Part D is optional. Part C: Medicare Advantage: These are Medicare approved health plans through private companies that are an alternative to Medicare Part A and Part B Medigap: For those with Parts A and B, Medigap policies are additional (and optional) insurance to pay for the co-insurance and deductibles in Parts A and B.
Where can I find out more information?
E3 Financial Planning will be holding seminars about Medicare with expert guest speakers. The first seminar will be on April 27th 2016 at 6pm at Bentley College. If you are interested in coming, please contact your advisor, you must RSVP to attend this event as space is limited. If you cannot make the April event, but would like to be invited to future Medicare seminars, please let your advisor know.